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Don’t Let Diminished Financial Capacity Put Your Elderly Loved Ones At Risk – Pt 1

With more and more Baby Boomers reaching retirement age each year, our country is undergoing an unprecedented demographic transformation that’s been dubbed “The Greying of America.” This population shift stands to affect many aspects of life, especially your relationships with aging parents and other senior family members.

By 2060, the number of Americans aged 65 and older is projected to nearly double from 52 million in 2018 to 95 million, which will account for 24% of the total population. And as early as 2030, the number of those 65 and older is expected to surpass the number of children (those under age 18) for the first time in history.

Coinciding with the boom in the elderly population, the number of Americans suffering from Alzheimer’s and other forms of dementia is expected to increase substantially as well. The Centers for Disease Control (CDC) estimates that the number of Americans with Alzheimer’s disease will double by 2060 when it’s expected to reach 14 million—more than 3% of the total population. 

 

A Decline in Financial Capacity

Although Alzheimer’s is the most common cause of dementia in older adults, it’s not the only one. In fact, the National Institute on Aging estimates that nearly half of all Americans will develop some form of dementia in their lifetime. And while the cognitive decline brought on by dementia affects a broad array of mental functions, many people aren’t aware that one of the first abilities to go is one’s “financial capacity.”   

Financial capacity refers to the ability to manage money and make wise financial decisions. Yet cognitive decline brought on by dementia often develops slowly over several years, so a diminished financial capacity frequently goes unnoticed—often until it’s too late. 

“Financial capacity is one of the first abilities to decline as cognitive impairment encroaches,” notes the AARP’s Public Policy Institute, “yet older people, their families, and others are frequently unaware that these deficits are developing.”  

Ironically, studies have also shown that the elderly’s confidence in their money management skills can actually increase as they get older, which puts them in a perilous position. As seniors begin to experience difficulty managing their money, they don’t realize they’re making poor choices, which makes them easy targets for financial exploitation, fraud, and abuse.

 

Watch For Red Flags

As you spend time with your aging parents and other senior relatives, this provides an ideal opportunity to be on the lookout for signs that your loved ones might be experiencing a decline in their financial capacity. The University of Alabama study “The Warning Signs of Diminished Financial Capacity in Older Adults” identified six red flags to watch for: 

1. Memory lapses: Examples include missing appointments, failing to make a payment—or making multiples of the same payment—forgetting to bring documents or where documents are located, repeatedly giving the same orders, repeatedly asking the same questions.

2. Disorganization: Mismanaging financial documents, and losing or misplacing bills, statements, or other records.

3. Declining checkbook management skills: Forgetting to record transactions in the register, incorrectly or incompletely filling out register entries, and incorrectly filling out the payee or amount on a check.

4. Mathematical mistakes: A declining ability to do basic oral or written math computations, such as making changes.

5. Confusion: Difficulty understanding basic financial concepts like mortgages, loans, or interest payments, which were previously well-understood.

6. Poor financial judgment: A new-found interest in get-rich-quick schemes or radical changes in investment strategy.

 

Managing Diminished Financial Capacity

If you notice your parents or other senior family members displaying any of these behaviors, you should take steps to protect them from their own poor judgment. It’s vital to address their cognitive decline as early as possible, not only to prevent financial mismanagement and exploitation but also to ensure their overall health and safety.

There are several estate planning tools that can be put in place to help your aging parents and other senior family members protect themselves and their assets from the debilitating effects of dementia and other forms of incapacity. In part two of this series, we’ll discuss the specific planning tools available for this purpose, and provide some guidance on how to address this sensitive subject with your elderly loved ones.  

Next week, we’ll continue with part two in this series on protecting your elderly loved ones from diminished financial capacity. 

As your Personal Family Lawyer®, we can guide you to make informed, educated, and empowered choices to protect yourself and the ones you love most. Contact us today to get started with a Family Wealth Planning Session.

This article is a service of Stephanie D. Hon, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

 

 

6 Ways The American Rescue Plan Can Boost Your Family’s Finances – Part 2

Signed into law on March 11th, President Biden’s $1.9 trillion American Rescue Plan Act of 2021 (ARP) is the largest direct-to-taxpayer stimulus legislation ever passed, and it came just in time to save millions of Americans whose unemployment benefits were about to expire. In addition to extending unemployment relief, the ARP provides individual taxpayers and small business owners with a number of other vital financial benefits aimed at helping the country rebound from last year’s economic downturn. 

Of these benefits, you’ve likely already seen one of the ARP’s leading elements—the $1,400 direct stimulus payments, which went to taxpayers, children, and dependents with incomes of less than $75,000 for individuals and $150,000 for joint filers. But beyond the stimulus, the ARP comes with numerous other provisions that can seriously boost your family’s finances for 2021.

To highlight the ways the ARP can impact your family’s bank account, last week in part one of this series, we outlined three of the legislation’s most important elements. Here in part two, we’ll break down three additional parts of the law that stand to boost your family’s finances. To learn about all the full array of benefits provided by the ARP, meet with us as your Personal Family Lawyer®

4. Unemployment Benefits

While Congress extended unemployment benefits in December 2020, those benefits were set to expire in mid-March 2021, but the ARP extends unemployment benefits through September 6, 2021, offering an extra $300 a week on top of regular benefits.

The legislation extends two other federal unemployment programs as well. First, the Pandemic Emergency Unemployment Compensation Program, which provides federal benefits for those taxpayers who’ve exhausted their state benefits, is now available for an additional 29 weeks, and you have until September 6, 2021, to apply.

Next up, the Pandemic Unemployment Assistance Program provides benefits to those who wouldn’t normally qualify for unemployment assistance, such as the self-employed, part-time workers, and gig workers. This program is now available for 79 weeks, and as with the other benefits, you have until September 6th to get signed up. For more information on the Pandemic Emergency Unemployment Compensation Program and the Pandemic Unemployment Assistance Program, contact your state’s unemployment insurance office.

Finally, the ARP makes the first $10,200 in unemployment benefits paid in 2020 tax-free for families making $150,000 or less. Note that the ARP doesn’t provide a different threshold for single and joint filers, so both spouses are entitled to the $10,200 tax break, for a potential total of $20,400, if both spouses received unemployment benefits in 2020.

However, if your unemployment benefits exceed $10,200 in 2020, you’ll need to report the excess as taxable income and pay taxes on the amount over the limit. And if your household income is over $150,000, you’ll need to pay taxes on all of your unemployment benefits.

If you already filed your 2020 return and paid taxes on your unemployment benefits before the passage of the ARP made those benefits tax-free, the IRS plans to automatically process your refund. This means you won’t have to tax any extra steps, such as filing an amended return, to secure the refund. 

5. Student Loan Relief

Under the CARES Act, federal student loan payments were paused until January 31, 2021, but the ARP extends the pause on those payments and collections through the end of September 2021. While Biden has repeatedly stated his support for $10,000 in federal student loan forgiveness, there was no student loan forgiveness included in the final version of the ARP.

That said, the ARP does offer some relief for those federal student loan borrowers who have their debt forgiven under already existing programs. Currently, federal student loan borrowers can enroll in programs that allow forgiveness after 20 or 25 years of on-time payments, but those borrowers have to pay income taxes on the amount that gets forgiven. 

Under the ARP, student loan debt forgiven between Jan. 1, 2021, and Jan. 1, 2026, will be income-tax-free. This means that if the government forgives a portion of your student loans during this period, that amount will no longer be considered taxable income. 

This provision applies to those taxpayers who are enrolled in the Income Contingent Repayment (ICR) plan, which was started in 1993 and requires 25 years of repayment to qualify for forgiveness. However, this benefit does not apply to other federal student loan repayment plans, which require 20 or 25 years of repayment but started in later years.   

Additionally, thanks to the ARP, if you are a small-business owner who has defaulted on your federal student loan or are delinquent in your payments, you can now qualify for a loan from the Paycheck Protection Program (PPP), which received $7.25 billion in additional funding under the ARP. Moreover, Congress recently extended the deadline to apply for a PPP loan from March 31, 2021, to May 31, 2021. For more details or to apply for a loan, visit the Small Business Administration’s PPP website.

6. COBRA Continuation Coverage Subsidy

The ARP provides a 100% COBRA subsidy for up to six months for those workers who lost their health insurance coverage due to involuntary termination or reduction of hours during the pandemic. The ARP also allows for an extended election period for those who would be eligible to receive the subsidy but did not initially elect COBRA as well as those who let their COBRA coverage lapse. 

Employees who are eligible for the subsidy, known as Assistance Eligible Individuals (AEIs), including those eligible for COBRA between November 1, 2019, and September 30, 2021, who is 1) already enrolled in COBRA, 2) those who did not previously elect COBRA, and 3) those who elected COBRA but let their coverage lapse. The subsidy does not apply to those who voluntarily terminate their employment or who are terminated for gross misconduct. 

The ARP COBRA subsidy lasts from April 1, 2021, through September 30, 2021, and it applies to both insured and self-insured plans subject to COBRA, as well as self-funded and insured plans that are not subject to COBRA but are subject to continuation coverage under state law. 

Note that the ARP subsidy is only available to those whose initial COBRA period ends (or would have ended if COBRA had been elected/did not lapse) either during or after this six-month period. The subsidy does not lengthen the COBRA period, which typically expires 18 months after coverage was lost. This means that if an AEI’s 18-month COBRA period begins after April 1, 2021, or ends before September 30, 2021, the subsidy will be shorter than six months.

The AEIs will not receive the subsidy directly from the government. Instead, the AEIs’ COBRA premiums will be considered paid in full during this period, and the employer must pay 100% of the AEIs’ COBRA premiums. From there, the employer will receive a refundable tax credit on their quarterly payroll tax filing. If an employer’s COBRA premium costs for AEIs exceed their Medicare payroll tax liability, they can file to get direct payment of the remaining credit amount.

COBRA beneficiaries who have elected COBRA and are covered under COBRA on April 1, 2021, do not need to enroll to be covered by the subsidy. For AEIs who did not initially elect COBRA or who let COBRA lapse, there will be a special enrollment period during which employers must inform AEIs of this benefit and allow them to elect coverage. This special enrollment period begins on April 1, 2021, and ends 60 days after the delivery of the COBRA notification to the employee.

A New Year Offers New Hope

With 2020 firmly in our rear-view mirror, the economy appears to be on the rebound, and things are slowly getting back to some semblance of normalcy. That said, many families continue to struggle financially, and if this includes you, you may be able to find some relief from the American Rescue Plan. 

While the six elements of the legislation we covered here are among the most popular, there may be other provisions we haven’t touched on that could benefit your personal situation. Watch for upcoming webinars (and even in-person events!) we’ll be hosting to support you in making wise legal and financial choices for your family. Until then, contact us, as your Personal Family Lawyer®, for guidance on your family’s estate planning strategies by scheduling a Wealth Planning Session today.

This article is a service of Stephanie D. Hon, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

 

6 Ways The American Rescue Plan Can Boost Your Family’s Finances – Part 1

Signed into law on March 11th, President Biden’s $1.9 trillion American Rescue Plan Act of 2021 (ARP) is the largest direct-to-taxpayer stimulus legislation ever passed, and it came just in time to save millions of Americans whose unemployment benefits were about to expire. In addition to extending unemployment relief, the ARP provides individual taxpayers and small business owners with a number of other vital financial benefits aimed at helping the country rebound from last year’s economic downturn.

Of these benefits, you’ve likely already seen one of the ARP’s leading elements—the $1,400 direct stimulus payments, which went to taxpayers, children, and nonchild dependents with incomes of less than $75,000 for individuals and $150,000 for joint filers. But beyond the stimulus, the ARP comes with numerous other provisions that can seriously boost your family’s finances for 2021.

To highlight the ways the ARP can impact your family’s wallet, here we’ll break down six of the legislation’s key elements. To learn about all the full array of benefits provided by the ARP, meet with us, as your Personal Family Lawyer®

  1. Child Tax Credit

If you have minor children, the ARP enhances the Child Tax Credit (CTC) in some major ways. Not only does it significantly increase the amount of credit, but it also changes the way you can receive the money.

Under the current CTC, parents can receive a maximum tax credit of $2,000 for each qualifying child under age 17, with $1,400 of that credit being refundable. The ARP increases that credit to $3,000 a year for each child aged 6 to 17 and $3,600 for each child under 6—and both amounts are fully refundable.

Parents who qualify for the full amount of $3,000 or $3,600 per child include single filers earning less than $75,000, and joint filers earning less than $150,000 annually. After this, the credit begins to phase out. However, parents who file singly and earn less than $200,000 ($400,000 for joint filers) could still claim the original $2,000 credit.

In addition to increasing the credit, the ARP also changes the way parents can access the money. Instead of applying the full amount of the credit to your income taxes at the end of the year and possibly getting a refund, you can now opt to receive the credit upfront in monthly payments of $250 per qualifying child or $300 for children under age 6.  

This means you can get half of the credit in the form of monthly cash payments and claim the other half when you file your 2021 taxes in April 2022. If you opt for the monthly payments, the IRS expects to send those out starting in July 2021 and lasting through December 2021. The ARP directs the Treasury Department to create an online portal that allows parents to opt-out of advance payments and report any changes in income, marital status, or the number of eligible children. 

Note that these increases are only in effect for 2021 and will revert back to the original amounts in 2022. However, there’s currently support in both Congress and the White House for making them permanent. Check our weekly blog and IRS.gov for updates to the legislation.

 

  1. Child and Dependent Care Tax Credit

In order to provide financial assistance to those families who pay for child care or care of an adult-dependent, such as an elderly parent, the ARP increases the Child and Dependent Care Tax Credit for 2021—and for the first time, it makes the credit refundable.

For 2021, the ARP provides a tax credit for the expenses associated with the care of qualifying dependents (kids 12 or younger or a disabled adult) for a total of up to $4,000 for one dependent and $8,000 for two or more dependents. This is an increase from the max credit amounts for 2020, which are $3,000 for a single dependent and $6,000 for multiple dependents. 

The IRS allows you to claim a fairly wide range of qualified expenses for such care, including the following:

  • Daycare
  • Babysitters, as well as housekeepers, cooks, and maids who take care of the child
  • Day camps and summer camps (overnight camps are not eligible)
  • Before and after-school programs
  • Nursery school or preschool
  • Nurses and aides who provide care for a disabled dependent 


The ARP also makes more people eligible for the credit by raising the income limit for the full credit from $15,000 to $125,000 per year. Those making between $125,000 and $400,000 are eligible for partial credit.

As an added bonus, the credit is fully refundable for 2021, so you could get a refund for the credit even if your tax bill is zero. However, as with the changes to the Child Tax Credit, these updates are only available in 2021, unless additional legislation is passed.

There are special rules for divorced couples looking to claim the Child and Dependent Care Tax Credit, so if that’s you, meet with us or a financial advisor for support.

 

  1. Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable tax credit for low- and middle-income workers that are frequently overlooked—and the ARP makes the credit more valuable for many taxpayers in 2021 than ever before. The amount you can claim for the EITC depends on your annual income and the number of kids you have, but people without kids can qualify, too.

For 2021, the ARP revises a number of EITC rules and makes an increased credit available to more childless taxpayers. While in past years, childless filers could only qualify for a relatively small credit, for 2021 the ARP boosts the maximum EITC for those without children from around $540 to just over $1,500.

The legislation also reduces the minimum age for a childless taxpayer to qualify, from 25 to 19, and it also eliminates the maximum age of 65 for the credit, so seniors of any age can qualify, as long as they meet the income requirements. The above changes from the ARP are only for 2021, but the law makes some permanent changes to the EITC as well.

In prior years, you couldn’t qualify for the EITC if you had more than $3,650 in investment income for the year. But thanks to the ARP, starting in 2021, you can have up to $10,000 of such “disqualified” income without losing the EITC, and for 2022 and beyond, this limit will remain and be adjusted for inflation. 

Below are the maximum EITC amounts for 2021, along with the maximum income you can earn before losing the credit altogether.

 

2021 Earned Income Tax Credit

Number of kidsMaximum earned income tax creditMax earnings, single or head of household filersMax earnings, joint filers
0$1,502$15,980$21,920
1$3,618$42,158$48,108
2$5,980$47,915$53,865
3 or more$6,728$51,464$57,414

 

Additionally, just for 2021, you can calculate your EITC using either your 2019 earned income or your 2021 earned income and use whichever number gets you the bigger credit. And don’t worry—if you go with the 2019 number, it has no effect on any of your other 2021 tax calculations. For example, if some or all of your income is from self-employment, using your 2019 income to calculate your 2021 EITC won’t increase your 2021 self-employment tax.

Finally, no matter the year, the EITC is fully refundable. This means you can collect the money even if you don’t owe any federal income tax. That said, calculating the credit can be quite complicated, so if you need a referral to a CPA to support you, please feel free to contact us for our favorite referrals.

Next week, in part two of this series we’ll cover the remaining three ways the American Rescue Plan can boost your family’s finances in 2021.

This article is a service of Stephanie D. Hon, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

7 Ways To Save Big Money On Your 2020 Taxes—Part 1

2020 was a nightmarish year for many families. But thanks to recent legislation, you could see a silver lining in the form of major tax breaks when filing your income taxes this spring. First up, although it’s technically not a tax break, the IRS announced this week that the deadline for filing your 2020 federal income taxes has been pushed back from April 15 to May 17, 2021, which gives you an extra month to get your tax return handled. 

The postponement applies to individual taxpayers, including those who pay self-employment taxes. But the extension does not apply to the first-quarter 2021 estimated tax payments that many small business owners file. So if you file quarterly taxes, contact your tax advisor now if you haven’t already done so.

Additionally, the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 provides individual taxpayers with several hefty tax-saving opportunities, many of which are only available this year. What’s more, President Biden’s new relief package, known as the American Rescue Plan (ARP), which went into effect in March 2021, not only offers additional stimulus payments to most Americans, but it also includes significant tax relief for those taxpayers who lost their job and had to rely on unemployment benefits in 2020.

While there are dozens of potential tax breaks available for 2020, here are 7 of the leading ways you can save big money on your 2020 tax return. 

  1. Stimulus Payments

As part of the CARES Act, millions of Americans received stimulus checks in 2020, and those payments were an advance refundable tax credit on your 2020 taxes. This means that no matter how much you owe (or get back) on your 2020 taxes, you get to keep all of the stimulus money and won’t have to pay any taxes on it.

Because the IRS didn’t have everyone’s 2020 tax returns when they issued the stimulus checks, they based the stimulus payments on your 2018 or 2019 returns, whichever one you had most recently filed. Using data from those years, the stimulus payments from 2020 phased out at an adjusted gross income (AGI) of $75,000 to $99,000 for singles and at $150,000 to $198,000 for married couples filing jointly.

Given that the stimulus payments were based on your AGI for 2018 or 2019 but technically apply to your 2020 AGI, you may find that your payment was either too much or too little. But there’s good news—even if your financial situation has improved since 2018 or 2019 and you received too much stimulus money based on your 2020 income, you get to keep the overage.

By the same token, if you received too little or only partial payment on your 2020 stimulus, you can claim what you missed in the form of a recovery rebate credit when you file your 2020 taxes. Not sure how this would work? Here are three scenarios where you may be entitled to additional stimulus money.

  • If your AGI for 2018/19 is higher than your AGI in 2020, you can claim the additional amount owed when you file your 2020 taxes this April.
  • If you had a child in 2020 but didn’t get the $500 credit for dependent children in your stimulus payment, you can claim the child when you file in 2021.
  • If someone else claimed the child based on 2018/19 returns, but you can legitimately claim that child on your 2020 return, you can get the $500 tax credit when you file in 2021, and the person who got it based on 2018/19 returns will not have to pay it back.
  1. Unemployment Benefits

When the pandemic stalled out the economy, many Americans lost their jobs and were forced to rely on unemployment insurance to pay the bills. That said, unemployment benefits are generally taxable, so if you took them, without having taxes automatically deducted, you were looking at having to pay income taxes on that money when you file your 2020 return.

However, taxpayers who received unemployment benefits in 2020 were provided with significant relief with the passage of President Biden’s American Rescue Plan (ARP). Under the ARP, the first $10,200 of your 2020 unemployment benefits are tax-free if your annual household income is less than $150,000. The ARP doesn’t provide a different threshold for single and joint filers, so both spouses are entitled to the $10,200 tax break, for a potential total of $20,400, if both spouses received the benefits.

Note that if your unemployment benefits exceed $10,200 in 2020, you’ll need to report the excess as taxable income and pay taxes on the amount over the limit. And if your household income is over $150,000, you’ll need to pay taxes on all of your unemployment benefits just like you would before the passage of the ARP.

If you already filed your 2020 return and paid taxes on your unemployment benefits before the passage of the ARP made those benefits tax-free, the IRS plans to automatically process your refund. This means you won’t have to tax any extra steps, such as filing an amended return, to secure the refund. The IRS will release further details on this issue in the coming weeks.

3. Waived RMDs

You are typically required to take an annual required minimum distribution (RMD) from your IRA, 401(k), or other tax-deferred retirement account starting in the year when you turn 72, but the CARES Act temporarily waived the RMD requirement for 2020. The waiver also applies if you reached age 70½ in 2019, but waited to take your first RMD until 2020, as allowed under the SECURE Act.

RMDs generally count as taxable income, so taking this waiver means that you may have lower taxable income in 2020 and therefore owe fewer income taxes for 2020.

However, there are a number of factors to consider, including the state of the market and your living expenses, when deciding whether or not to waive your RMDs. Given this, consult with us, as your Personal Family Lawyer®, or your tax professional before making your final decision.

Next week, in part two of this, we’ll cover the remaining four ways you can save big money on your 2020 tax bill. 

This article is a service of Stephanie D. Hon, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

Why Estate Planning is a Women’s Issue

A group of wealth strategists at CIBC Private Wealth Management noticed that the women in attendance at educational seminars for client couples were often mum. So, as part of the firm’s Women’s CIRCLE initiative, they started women-only seminars, including one called Finding Your Way. The idea is that if you take an inventory of your financial life, and know a little bit about how the estate administration process works, you’ll be more confident and better prepared to deal with a death in the family.

The surprise: It wasn’t just older women in their 60s and 70s who have been signing up, but Millennial women, wanting to know what they should be doing to manage their own wealth and make sure their parents (especially moms who will generally outlive dads) are in good shape in the event of a death or divorce.

“These concepts are really daunting and quite scary,” says Becky Milliman, a managing director with CIBC Private Wealth Management in Chicago, noting that it takes courage for the less financially sophisticated family member to speak up, and that tends to be the woman.

Here are some top lessons.

Keep a list of trusted advisors. Many of the adult children couldn’t name their parents’ attorney or accountant. You shouldn’t just know their names, you should meet them or at least make a quick introductory phone call. Ditto for financial advisors, bankers, and/or insurance brokers. Keep an updated list with your will. More wealth management firms are rolling out “emergency contact forms” as a backstop for elder abuse. Fill them out.

Use a thumb drive. There were real concerns over digital assets, says Amanda Marsted, a managing director of CIBC Private Wealth Management in New York. Would you know the login information to access your spouse or parents’ accounts? Consider using a password manager, or store password information (and documents) on a thumb drive.

Have the conversation. What if mom or dad (or your spouse) says: “When you need to know, you’ll get the information.” Tell them: You don’t have to share balances, but at a minimum, you should share advisors, bank account numbers, and such. That will prevent much bigger problems down the line.

Keep important documents secure. Are your original wills and trusts at the lawyer’s office? Your real estate deed in your bank safe deposit box? Your insurance policies in one filing cabinet and income tax returns in another? The list goes on: retirement plan statements, birth/marriage certificates, Social Security cards. Make a list of these documents, including where you keep them. “You need to be prepared,” Milliman says.

Plan ahead if you have a family business. If you have a family business, do you have a succession plan in place? In one case, a widow was left with a business her late husband founded that she had no interest in carrying on. Luckily, it turned out to be an opportunistic time to sell, and Milliman helped the widow create a family foundation to minimize taxes from the sale and help her make a difference.

 Source: https://www.forbes.com/sites/ashleaebeling/2018/07/10/why-estate-planning-is-a-womens-issue/#35fdba54536e

New Developments Transform the Role Life Insurance Plays in Your Estate and Financial Planning

Within the past year, a combination of new legislation and the recent change of leadership in the White House and Congress stands to dramatically increase the income taxes your loved ones will have to pay on inherited retirement accounts as well as increasing the income taxes you owe on your taxable investments. However, purchasing life insurance may offer you the opportunity to minimize the effect of these developments.

To this end, if you hold assets in a retirement account, you need to review your financial plan and estate plan as soon as possible to determine if investing in life insurance or some other strategy may offer tax-saving benefits for you and your family. To help you with this process, here we’ll discuss how these new developments might affect the taxes owed by you and your heirs, and how investing in life insurance may help offset the tax impact of these new changes.

The SECURE Act

At the start of 2020, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect, and the new law effectively put an end to the so-called “stretch IRA.” Under prior law, beneficiaries of your retirement account could choose to stretch out distributions of an inherited retirement account over their own life expectancy to minimize the income taxes owed on those distributions. 

For example, an 18-year-old beneficiary expected to live an additional 65 years could inherit an IRA and stretch out the distributions for 65 years, paying income tax on just the portion withdrawn each year. In that case, the income tax law would encourage the child not to withdraw and spend the inherited assets all at once.

Under the new law, however, most designated beneficiaries of inherited IRAs and similar tax-deferred qualified retirement accounts are now required to withdraw all of the assets from the inherited account—and pay income taxes on those withdrawals—within 10 years of the account owner’s death. Those who fail to withdraw funds within the 10-year window face a 50% tax penalty on the assets remaining in the account.

But this is just the first development that stands to affect the amount of taxes your heirs might face in the near future on inherited investments.

Democrats Take Control

As we highlighted in a previous article, the recent election of Joe Biden as President and subsequent Democratic takeover of the Senate will likely result in the passage of new tax legislation that could have a significant impact on your family’s financial and estate planning considerations. 

Specifically, it’s likely that within the next two years Democrats will pass legislation aimed at eliminating many of the tax cuts enacted through the 2017 Tax Cuts and Jobs Act. As part of this legislation, we’re expected to see significantly lower federal estate tax exemptions, the elimination of the step-up in cost basis on inherited assets, as well as an increase in the top personal income and capital gains tax rates. 

One way you may be able to minimize the new taxes on both your tax-deferred retirement accounts and taxable investments is by investing in cash-value life insurance. Let’s break down exactly what this strategy might look like.

The New Role of Life Insurance In Your Estate and Financial Planning

Given the new distribution requirements for inherited IRAs, you should consider whether it makes sense to withdraw funds from your retirement account now, pay the tax, and invest the remainder in cash-value life insurance. From there, you can access the accumulated cash-surrender value of the life insurance policy income-tax-free during your lifetime via tax-free withdrawals and/or loans. And upon your death, the death benefit of your life insurance policy would be income-tax-free for your heirs.

By annually investing what you would otherwise put into tax-deferred retirement accounts into a cash-value life insurance contract, or by taking taxable withdrawals from your tax-deferred retirement accounts over time and reinvesting them in cash-value life insurance, you can effectively move these funds into a tax-free, rather than tax-deferred, investment vehicle.

This strategy could not only minimize the income taxes you pay over your lifetime, but it could also significantly reduce the tax bill imposed on your designated beneficiaries after your death since life insurance proceeds are income-tax-free.

Additionally, by investing a portion of your investable assets in cash-value life insurance, you can offset the effects of the proposed loss of income tax basis step-up upon your death, which we’re likely to see enacted through Democrat-backed legislation. What’s more, this strategy would also minimize your current income taxes on what otherwise would have been taxable income from your investments, as growth on investments inside a life insurance policy is not subject to income tax, including any capital gains.

Finally, if you stand to be affected by the proposed decrease of the federal estate tax exemption, which is currently set at $11.7 million, by placing the life insurance policy inside an irrevocable life insurance trust, you can remove the death benefit paid out to your beneficiaries from your taxable estate. In doing so, you would still be able to access the cash value of the insurance policy during your lifetime, either via a so-called “spousal access trust,” if you are married, or via a traditional irrevocable life insurance trust, if you are not married. 

Rethink Your Planning

Although the SECURE Act and the proposed new legislation stand to have an adverse effect on the tax consequences for your retirement and estate planning, investing in life insurance may offer you a valuable tax-saving opportunity. That said, you can only take advantage of this opportunity if you plan for it.

If you fail to revise your plan to address the SECURE Act’s new requirements and/or the proposed legislation that’s likely to be passed by the Democratic administration, you and your family could face a significantly higher tax bill. To prevent this from happening, schedule a Family Wealth Planning Session™ or an existing estate-plan review today.

With us as your Personal Family Lawyer®, we’ll work with you and your financial advisor to analyze all of the ways your retirement accounts might be impacted by the SECURE Act and the new proposed legislation and come up with the most effective planning strategies for passing your assets to your loved ones in the most tax-advantaged manner possible, while ensuring your current tax liabilities are similarly minimized. To learn more, contact us right away.

This article is a service of Stephanie D. Hon, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

 

Does Your Estate Plan Protect Your Intellectual Property?

If you own a business, you almost certainly have intellectual property. However, because your intellectual property is intangible, it can be invisible to you and those who aren’t familiar with the nature of intellectual property and its value, so it often gets overlooked, especially when it comes to estate planning. Yet, if you fail to properly document your intellectual property, your estate plan will likely not protect it—and this could cause your loved ones to miss out on what can be among your most valuable assets.

When we talk about intellectual property, we’re referring to creations of the mind, including inventions, literary and artistic works, designs, logos, brand names, and images, all of which are used in the course of a business.

Even if you’ve worked with a lawyer to set up your business entity or a CPA to file your taxes, those advisors may not be thinking about or helping you plan for what happens to your intangible business assets upon your death. Similarly, most lawyers who focus on estate planning don’t really understand the value of intellectual property and how to protect it.

Along those same lines, when helping you set up your business structures, most business lawyers aren’t thinking about your incapacity or death. With this in mind, it’s vital that you understand enough to ensure that any intellectual property you own is documented, protected, and you’re working with a legal team that helps ensure the value of your intellectual property isn’t lost when you die. 

Identifying, Valuing, and Protecting Your Intellectual Property

In today’s world, your intellectual property could be your most valuable asset. In fact, studies show that 80% of a typical company’s total value consists of intellectual property. Given this, we want to support you to make the invisible visible, enhance its value, protect it properly, and ensure your family receives the maximum value from your intellectual capital when you pass away. 

Properly protecting your intellectual property, or IP, begins with identifying it and valuing it. Yet, even the biggest of today’s companies often fail in this regard. “Very few companies recognize the value of their IP, nor have they secured an IP strategy that mirrors their long-term corporate strategy in order to maximize this value,” said Brian Hinman, Chief Innovation Officer at Aon, a leading global professional services firm.

And while you might think that identifying, protecting, and valuing your intellectual property is something that only applies to big companies, not small businesses like yours, that’s definitely not the case. Indeed, your intellectual property can be of even greater value to your loved ones once you’re no longer around and able to financially provide for them.

For all of these reasons, it’s imperative that you take the proper steps to not only protect these intangible assets during your lifetime but that you also use estate planning to ensure that your intellectual property is properly handled following your death, so your loved ones can continue to get the most value out of these most valuable assets.

Documentation and Registration
The first step to take in protecting your intellectual property is to formally document it in your inventory of assets. When you create your asset inventory, be sure to not only list all business entities you own, but also consider that each business entity should maintain a record of its assets, including intangible assets like intellectual property.

The next step is to legally register trademarks, copyrights, and patents with the U.S. Patent and Trademark Office, and ensure you have the proper legal agreements and contracts in place to ensure there’s no question about who owns these works. To this end, if you have not protected your intellectual property with copyrights, trademarks, patents, royalty and licensing agreements, non-competes for employees, and work-for-hire provisions in your existing agreements with independent contractors and vendors, now is the time to do so. 

Don’t wait until your intellectual property gets stolen or you receive a cease-and-desist letter to put these protections in place. Registering a trademark or copyright might cost you time and money, but failing to register your brand can ultimately cost you far more than that in legal fees or the lost value of your assets, especially if you end up in court, trying to fight for what you thought you owned.

Address Your Intellectual Property in Your Estate Plan

In addition to protecting your intellectual property during your lifetime, you don’t want to put your loved ones in the position of losing those intangible assets in the event of your incapacity or death. To prevent your heirs from losing out on your most valuable assets, as well as ensuring they don’t get caught up in long, costly court battles over the ownership of your intangible assets, you should put in the time and energy to protect these assets now.

After you have documented your intellectual property, review the operating agreement or bylaws of your business entity. And if you don’t have an operating agreement or bylaws, now is the time to put these essential legal agreements in place. Read through your governing documents to see what they say about what happens to your business and its intellectual property upon your death or incapacity.

If you think this all sounds overly complicated, imagine how much more difficult it will be for your loved ones to deal with it should something happen to you. In fact, it could prove impossible for your loved ones to handle these matters in your absence, which is why it’s so important for you and your legal team to take care of these issues now. That way, your family isn’t stuck trying to clean up your mess after your death.

To demonstrate just how lengthy, costly, and ugly court battles over intellectual property can be, read this account of the troubles American writer John Steinbeck’s children and grandchildren had in dealing with the rights to his literary works following his death. Even though the Nobel Prize-winning author died in 1968, his family members were still fighting over his intangible assets as recently as 2017, nearly half a century later.

 

Protect Your Intellectual Property For Future Generations
While you might not be a Steinbeck, you very well may have valuable intellectual property that has not been properly documented or addressed in your estate plan. If that’s the case, meet with us, as your Personal Family Lawyer®, right away to discuss how we can support you in documenting, valuing, and protecting these intangible assets, so your loved ones can benefit from these creations for generations to come.

This article is a service of Stephanie D. Hon, Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

Moving To A New State? Remember to Update Your Estate Plan

Although you likely won’t need to have an entirely new estate plan prepared for you, upon relocating to another state, you should definitely have your existing plan reviewed by an estate planning lawyer who is familiar with your new home state’s laws. Each state has its own laws governing estate planning, and those laws can differ significantly from one location to another.

Given this, you’ll want to make sure your planning documents all comply with the new state’s laws, and the terms of those documents still work as intended. Here, we’ll discuss how differing state laws can affect common planning documents and the steps you might want to take to ensure your documents are properly updated.

Last Will and Testament

The good news is, most states will accept a will that was executed properly under another state’s laws. However, there could be differences in the new state’s laws that make certain provisions in your will invalid. Here are a few of the things you should pay the most attention to in your will when moving:

Your executor:

Consider whether or not the executor or administrator you’ve chosen will be able to serve in that role in your new location. Every state will allow an out-of-state executor to serve, but some states have special requirements that those executors must meet, such as requiring them to post a bond before serving. Other states require non-resident executors to appoint an agent who lives within the state to accept legal documents on behalf of the estate.

Marital property:

If you are married, give special consideration to how your new state treats marital property. While a common-law state might treat the property you own in your name alone as yours, community-property states treat all of your property as owned jointly with your spouse. If your new state treats marital property differently, you might need to draft a new will to ensure your wishes are honored.

Interested witnesses:

Another important role under your will to consider when moving to a new state is an interested witness. An interested witness is someone who was a witness to your will who also receives a gift from your will. Some states allow interested witnesses to receive the gift, while other states do not allow such gifts. And still other states allow such gifts provided the witness is a family member.

Revocable Living Trust

A valid revocable living trust from one state should continue to be valid in your new state. However, you need to make certain that you transfer any new assets or property you acquire, such as your new home, to your trust, so that those assets can avoid the need to go through probate before being distributed to your heirs upon your death.

Power of Attorney

A valid power of attorney document, such as a durable power of attorney, medical power of attorney, or financial power of attorney, created in one state may be valid in your new state. However, you shouldn’t just assume it will be accepted, and you should check with a lawyer like us to make certain your document will work 100% as intended.

What’s more, in some cases, banks, financial institutions, and healthcare facilities in your new state may not accept a power of attorney document if it’s unfamiliar to them, which is another reason to have these documents reviewed by a professional. Finally, simply as a practical matter, it may be a good idea to have your power of attorney agent live in the same state you do, so keep that in mind as well.

Advance Directive/ Living Will

When it comes to advance directives, such as a living will and medical power of attorney, you’ll find that most states will accept documents that were created in other states, but this isn’t guaranteed. Some states, for example, don’t even have any laws governing these matters, so healthcare professionals may be hesitant to accept out-of-state documents.

Furthermore, the provisions, forms, and language used in advance directives can vary widely between states. For example, some states combine a medical power of attorney with a living will, so that you get to name the person in charge of making your medical decisions in the event of your incapacity and spell out your specific wishes for care all in one document. Yet, in other states the documents are separate. For these reasons, you should enlist the help of a lawyer to make sure your advance directives will be honored in your new locale.

While you are reviewing your directives for your new state, you should also review them to ensure they are clear on your wishes regarding how you should be given nutrition and hydration if hospitalized. Many directives aren’t specific enough in this area, and this is exactly what led to the lengthy battle over Terry Schiavo’s life. In addition, check to see if you want to add or change any provisions to account for the current realities of COVID-19.

Beneficiary Designations

If you have accounts with beneficiary designations, such as 401(k)s, life insurance policies, and payable-on-death bank accounts, these should be valid no matter which state you live in. That said, you should still review these documents when you move to ensure that your address and other personal information is updated.

Keep Your Plan Current

As with other major life events, such as births, deaths, and divorce, moving to a new state is the ideal time to have your plan reviewed by a professional. With us, as your Personal Family Lawyer®, we’ll not only support you in creating the planning documents that are best suited for your situation and asset profile, but we also have systems and processes in place to ensure your documents stay totally updated throughout your lifetime.

Additionally, for parents of minor children, we can also help you create the legal documents for naming both short and long-term guardians, who would care for your kids in the event of your death of incapacity. This is so important; we’ve developed a comprehensive system called the Kids Protection Plan® that guides you step-by-step through the process of creating the legal documents naming these guardians.

You can get the process of naming guardians started right now for free by visiting our user-friendly website: Kids Protection Plan 

Schedule a Family Wealth Planning Session with us to learn more about our services or to get your estate plan started or reviewed today.

5 Steps For Adding Digital Assets To Your Estate Plan

Although digital technology has made many aspects of our lives much easier and more convenient, it has also created some unique challenges when it comes to estate planning.

If you haven’t planned properly, for example, just locating and accessing all of your digital assets can be a major headache—or even impossible—for your loved ones following your death or incapacity.And even if your loved ones can access your digital assets, in some cases, doing so may violate privacy laws and/or the terms of service governing your accounts. You may also have some online assets that you don’t want your loved ones to inherit, so you’ll need to take measures to restrict and/or limit access to such assets.

​Given the unique nature of your online property, there are a number of special considerations you should be aware of when including online property in your plan. Here are a few of the steps you should take to help ensure your digital assets are properly accounted for, managed, and passed on.

1. Make an inventory:

Create a list of all your digital assets, along with their login and password information. Some of the most common digital assets include cryptocurrency, online financial accounts, online payment accounts like PayPal, websites, blogs, digital photos, email, and social media.

Store the list in a secure location, and provide your fiduciary (executor, trustee, or power of attorney agent) with detailed instructions about how to locate and access your accounts. To make them easier to manage, back up any cloud-based assets to a computer, flash drive, or other physical storage device. Review this list regularly to account for any new digital property you acquire.

2. Include digital assets in your estate plan:

Just like any other property you want to pass on, detail in your plan who you want to inherit each digital asset, along with your wishes for how the asset should be used or managed. If you have any assets you don’t want passed on, include instructions for how these accounts should be closed and/or deleted.

Do NOT include passwords or security keys in your planning documents, where they can be read by others. This is especially true for your will, which becomes public record upon your death. Instead, keep this information in a separate, secure location, and provide your fiduciary with instructions about how to access it. Consider using digital account-management services, such as Directive Communication Systems, to help streamline this process.

If you have particularly complex or highly encrypted digital assets like cryptocurrency, consider including provisions in your plan allowing your fiduciary to hire an IT consultant to deal with any technical challenges that might come up.

3. Restrict access:

Include terms in your plan detailing the level of access you want your fiduciary to have to your digital accounts. For example, do you want your fiduciary to be allowed to view your emails, photos, and social media posts before passing them on or deleting them? If there are any assets you want to limit access to, we can help you include the necessary provisions in your plan to ensure your privacy is respected.

4. Include relevant hardware: 

Don’t forget to include the physical devices—smartphones, computers, tablets—upon which your digital assets are stored in your plan. Having quick access to these devices will make it much easier for your fiduciary to manage your digital assets. And since the data can be transferred or deleted, you can even leave these devices to someone other than the individual who inherits the digital property stored on them.

5. Review service providers’ access-authorization functions:

Some service providers like Google, Facebook, and Instagram allow you to give specific individuals access to your accounts upon your death. Review the terms of service for your accounts, and if these functions are available, use them to document who you want to access your accounts.

Double check that the people you named to inherit your digital assets using these access-authorization tools match those you’ve named in your estate plan. If not, the provider will likely give priority to the person named with its tool, not your plan.

Keep pace with technology

As technology evolves, you’ll need to adapt your estate plan to keep pace with the ever-changing nature of your assets. As your Personal Family Lawyer®, we know just how valuable your online property can be, and our planning strategies are specifically designed to ensure these assets are preserved and passed on seamlessly in the event of your death or incapacity. Contact us today to schedule a Family Wealth Planning Session.

4 Tips For Talking About Estate Planning With Your Family Over the Holidays

With COVID-19 still raging, your 2020 holiday season may not feature the big family get-togethers of years past, but you’ll still likely be visiting with loved ones in some fashion, whether via video chat or in smaller groups. And though the holidays are always a good time to bring up estate planning, given the ongoing pandemic, talking about these issues is particularly urgent this time around.

That said, asking your dad about his end-of-life wishes while he’s watching football isn’t the best way to broach the subject. In order to make the talk as productive as possible, consider the following four tips.


1. Set aside a time and place to talk

Discussing planning while opening Christmas gifts most likely won’t be very productive. Your best bet is to schedule a time, when you can all gather to talk without distractions or interruptions.

Be upfront with your family about the meeting’s purpose, so no one is taken by surprise and people come prepared for the talk. Choose a setting that’s comfortable, quiet, and private. The more relaxed everyone is, the more likely they’ll be comfortable opening up.

2. Create an agenda, and set a start and stop time

Create a list of the most important points you want to cover, and do your best to stick to them. You should encourage open conversation, but having a list of items you want to cover can help ensure you don’t forget anything.

Also, set a start and stop time for the conversation. This will help keep the discussion on track and prevent people from veering too far off topic. If anything important comes up that’s not on the list, you can always continue the discussion later. Remember, the goal is to simply get the conversation started, not work out all of the details or dollar amounts.

3. Explain why planning is important

Assure everyone that the conversation isn’t about prying into anyone’s finances, health, or relationships—it’s about providing for the family’s future security and wellbeing no matter what happens. It’s about ensuring everyone’s wishes are clearly understood and honored, not about finding out how much money someone stands to inherit.

Talking about these issues is also a good way to avoid future conflict and expense. When family members don’t clearly understand the reasoning behind one another’s planning choices, it’s likely to breed conflict, resentment, and even costly legal battles.

4. Discuss your planning experience

If you’ve already created your plan, start the talk by explaining the planning documents you have in place and why you chose them. If you’ve worked with us, as your Personal Family Lawyer®, describe how the process unfolded and how we supported you to create a plan designed for your unique wishes and needs.

Mention any questions or concerns you initially had about planning and how we worked with you to address them. If you have loved ones who’ve yet to do any planning and have doubts about its usefulness, discuss their concerns in a sympathetic and supportive manner, sharing how you dealt with similar issues whenever possible.

If you have not yet worked with us on your estate plan, consider watching this brief training that discusses what you need to do, what you can do yourself, and what you need a lawyer to help you with. You may even want to watch it with your family, and outline the actions steps together. And if one of your action steps is to enlist the support of a lawyer to get your planning done, call us for a Family Wealth Planning Session™.

For the love of your family

With us as your Personal Family Lawyer®, we can guide and support you in having these intimate discussions with your loved ones. When done right, planning can put your life and relationships into a much clearer focus and offer peace of mind knowing that the people you love most will be protected and provided for no matter what. Contact us today to learn more.
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